Just ran across Eric Dubin's buy recommendation on Asyst from Feb. 4 at the Microsoft Investor site.
Eric Dubin
Journal: February 4, 1998
Buy Asyst Technologies (ASYT),
200 shares at market
Intel (INTC), Microsoft (MSFT), Sun Microsystems (SUNW), Dell Computer (DELL) and a whole host of companies, large and small, have seen strong rebounds in the past five weeks. But the trading in the semiconductor capital-equipment segment is particularly telling. Institutional investors that were tripping all over themselves to get out of these shares have come barreling back. No better litmus test demonstrates just how aggressive tech bulls have become.
In this year alone, Applied Materials (AMAT), the equipment-industry titan, has seen its shares swing from a low of 26 7/16 to a February high of 35 3/4 -- a 35% move. But that's nothing. Move further down in market capitalization and the swings smaller companies have demonstrated are nothing short of mind-numbing. For example, PRI Automation (PRIA), the market leading supplier of automation systems for semiconductor fabrication plants ("fabs"), offered-up a cautious outlook on its January 23 earnings conference call. The stock was promptly pummeled to a low of 21 1/2. Yet just seven trading days later, PRI Automation hit a 1998 high of 35, a 63% move!
A 63%-swing with no major change in industry conditions? No company-specific news? To the casual observer, it would be hard to not conclude portfolio managers suffered from a momentary lapse of reason, at best, and at worst, the "pros" were simply nuts.
But before you contemplate a lucrative trade of renting rubber rooms at the corner of Broad and Wall Street, keep in mind that these sort of swings in semiconductor-equipment shares are typical when dark clouds muddle the industry outlook. The semiconductor industry is cyclical, and the fortunes of companies manufacturing the tools to make chips are, arguably, even more sensitive to demand cycles than the semiconductor companies themselves.
Without a doubt, the semiconductor industry is not out of the woods yet. Many semiconductor and semiconductor capital equipment companies have a difficult couple of quarters ahead. But so far, the message of 1998 is clear: It's time for very selective buying.
At Thursday's open, I will purchase of 200 shares of Asyst Technologies (ASYT). At this juncture, this position will most likely serve as a core long-term holding, offering exposure to one of the fastest growing segments of the semiconductor-equipment industry.
Asyst is a leader in so-called intra-bay automation systems. These systems are used to transport silicon wafers within a processing tool environment, long before wafers are cut up into individual chips. Asyst specializes intra-bay mini-environments, "Lilliputian clean rooms," as Zacks aptly describes.
Chip manufacturing is a tricky business, and one of the ways semiconductor companies create ultra-clean conditions is to quite literally encase wafer processing tools within a mini-environment. The automation comes into play when cassettes of wafers are loaded into these environments and manipulated by the processing tools.
Sound complicated? It is, but manufacturers go the extra mile with these automation systems to cut down on defects, a semiconductor manufacturer's worst nightmare. You will often hear semiconductor companies describe how their gross margins (and if you own the stock, your profits) improved as a result of higher "yields," getting more good chips from silicon wafers. Automation has proven to be an integral method of increasing manufacturing yield, and the return on investment from the manufacturer's point of view has lead to the strong growth for Asyst, PRI Automation and other suppliers.
With the first three quarters of fiscal 1998 under its belt, Asyst has turned in strong financial performance. In the pervious year, the company wrote-off automation product lines outside their core focus area and managed a restructuring effort that sent the shares rocketing higher through last summer. The firm's financial condition today remains quite healthy. They have no debt and short-term assets far outweigh short-term liabilities, with a current ratio of 3.2. Return on equity and return on assets stand at 18.4 and 13.2 respectively; robust given the restructuring seen in the last year.
Zacks analyst estimates indicate the company is expected to close the fiscal year with earnings of $1.50 per share, which is attainable despite the period of industry demand weakness investors must endure for the next six to nine months. At about 26, the stock trades at 17 times fiscal 1998 earnings, a reasonable discount to earnings growth that will likely average in the 20% to 25% range for the next three years.
When sentiment swings firmly into the bull camp, and it eventually will, it would not be surprising to see Asyst trade at a multiple to earnings of 30 times earnings per share. So, within 18 months, that could lead to a stock price of 45 or more.
But here's the near-term rub: Asyst sells directly to Asian semiconductor manufacturers and also carries Asian economic risk through sales to partners such as Lam Research (LRCX), KLA-Tencor (KLAC) and Applied Materials. The greatest risk lies in Taiwan. Although the nation has only seen its currency devalued by about 20% vs. the U.S. Dollar, while other South East Asian Nations have seen declines of 50% or more, analysts have noted that demand conditions have slackened even for Taiwanese manufacturers.
The Tech Stalker needs to pay close attention to the discounting process. In many other semiconductor-equipment shares, Wall Street is discounting firming business conditions in the latter part of 1998 and what will surely be a strong 1999. It will do the same with Asyst going forward. Downside could easily be $20. In fact, if you are not prepared to see the shares move this low in short-order, Asyst is no place for your money. But in the mid-20s, the shares offer value for the long-term investor seeking exposure to one of the fastest growing segments of the semiconductor-equipment industry. |
